Aim: The aim of this study was to determine the possibility of improving erectile dysfunction using cell therapy with either human urine-derived stem cells (USCs) or USCs genetically-modified with FGF2 in a type 2 diabetic rat model. Methods: Human USCs were collected from 3 healthy donors. USCs were transfected with FGF2 (USCs-FGF2). Sixty-five SD male rats were divided into five groups (G). A control group of normal rats (G1, n = 10), and four other test groups of type 2 diabetic erectile dysfunction rats: PBS as a negative control (G2, n = 10), USCs (G3, n = 15), lentivirus-FGF2 (G4, n = 15), and USCs-FGF2 (G5, n = 15). Diabetes was induced in the rats via a high fat diet for 28 days and a subsequent intraperitoneal injection of streptozotocin (35 mg/kg). Erectile dysfunction was screened with apomorphine (100 μg/kg). Cell injections in the test groups (G2–G5) occurred directly into the corpora cavernosa. The implanted cells were tracked at 7 days (n = 5 animals/G) and 28 days (n = 10 animals/G) post injection. Mean arterial pressure (MAP), intracavernosal pressure (ICP), expression of endothelial markers (CD31, VEGF and eNOS), smooth muscle markers (desmin and smoothelin), histological changes and erectile function were assessed for each group. Results: USCs expressed mesenchymal stem cell markers, and secreted a number of proangiogenic growth factors. USCs expressed endothelial cell markers (CD31 and vWF) after transfection with FGF2. Implanted USCs or USCs-FGF2 displayed a significantly raised ICP and ICP/MAP ratio (p<0.01) 28 days after intracavernous injection. Although few cell were detected within the implanted sites, histological and western blot analysis demonstrated an increased expression of endothelial and smooth muscle markers within the cavernous tissue following USC or USC-FGF2 injection. Conclusions: The paracrine effect of USCs or USCs-FGF2 induced improvement of erectile function in type 2 diabetic rats by recruiting resident cells and increasing the endothelial expression and contents of smooth muscle.